Other Disclosures

44. Long-Term Incentive Program (from 2020 Performance Share Plan PSP)

Long-Term Incentive Program

The Long-Term Incentive Program (LTIP) for the Executive Board and Senior Managers was introduced effective January 1, 2010.

A certain number of virtual shares (so-called performance shares) is allocated annually depending on certain performance objectives. Target achievement is measured over four years (performance period); payment in cash takes place immediately at the end of the four-year performance period.

The number of virtual shares actually allocated depends on the extent to which two performance targets are met:

 

• Earnings per Share (EPS) (target weighting 70%) This internal performance target is determined by comparing the actual average EPS in the performance period with the weighted average plan EPS at the time of awarding.
• Rank Total Shareholder Return MDAX (TSR) (target weighting 30%) The TSR measures the development of shares over a certain period of time subject to dividends and share price developments. Therefore, it constitutes a market-dependent performance target.

 

On January 1 of the years 2017 to 2019, the Executive Board and Senior Managers in the Fraport Group were each promised a tranche. The tranches for the Executive Board and for Senior Managers differ in the calculation of the extent to which objectives have been reached for the targets in the weighting of the individual years of the performance period.

Performance Share Plan

Effective January 1, 2020, the Long-Term Incentive Program (LTIP) used to determine the long-term performance remuneration for the Executive Board has been replaced by the Performance Share Plan (PSP), which maintains the performance period of four years. The Long-Term Strategy Award based on a three-year period was initially transferred to the previous LTIP in order to make the remuneration even more sustainable for the long term.

The long-term performance remuneration component consists of a performance share plan with a four-year performance period. At the start of the plan, each member of the Executive Board is promised a target amount in euros specified in their employment contract as an allocation value. This amount is divided by the initial fair value (i.e., the financially determined fair value according to the accounting standard IFRS 2, “Share-Based Payment”) per performance share at the beginning of the performance period, resulting in the provisional number of virtual performance shares allocated to each case.

The achievement of the performance share plan is determined by two performance criteria, Earnings Per Share (EPS) and the Total Shareholder Return (TSR) to the companies in the MDAX.

 

• The Earnings Per Share (EPS) criterion is used as an internal financial performance target and is taken into account with a weighting of 70%. The EPS performance criterion provides incentives to operate profitably. This forms the basis for the sustainable and long-term growth of Fraport AG and ensures the financing capacity of necessary capital expenditure and thus the achievement of important strategic goals. Long-term growth helps Fraport AG to achieve its objective of establishing itself as Europe’s best airport operator and also to set global standards among the competition. In determining the achievement of the EPS target, a target value derived from strategic planning is compared with the actual EPS value achieved. This compares the average of the annual actual EPS values determined during the performance period with the average target EPS. If the average actual EPS value is equal to the average target EPS (target value), the target achievement rate is 100%. If the average actual EPS value is 25% below the target value, the target achievement rate is 50%. If the average actual EPS value is more than 25% below the target value, the target achievement rate is 0%. If the average actual EPS value is 25% or more above the target value, the target achievement rate is 150%. Between these values, the degree of achievement follows a straight-line development.
• As a further performance criterion, the relative Total Shareholder Return (TSR) uses an external performance criterion geared to the capital market, which is weighted at 30%. The relative TSR takes into account the development of the Fraport share price plus fictitious reinvested gross dividends compared to a predefined comparison group. The relative TSR links the interests of the Executive Board and shareholders and integrates a relative measurement of success into the remuneration system for the Executive Board. This creates an incentive to outperform the relevant comparison group in the long term. Fraport AG pursues the goal of being an attractive investment for shareholders and therefore provides an incentive for above-average success on the capital market. Achieving the target for the relative TSR is based on a comparison with the MDAX. The Supervisory Board considers the MDAX to be an appropriate benchmark group, as Fraport AG is listed in this index and the MDAX consists of companies of a comparable size. To calculate the TSR in the performance period of the Fraport AG share and the MDAX, the arithmetic average of the closing prices over the last 30 trading days before the beginning of a year of the performance period and over the last 30 trading days before the end of a year of the performance period is determined and then averaged relative to the four years of a performance period. In determining the arithmetic average of closing prices at the end of the performance period, a fictitious amount of reinvested gross dividends is also taken into account. The target achievement is 100% if the TSR performance of the Fraport AG share corresponds to the TSR performance of the comparison group. If the TSR performance of the Fraport AG share is 25% below the TSR performance of the MDAX, the target is 50%. If the TSR performance of the Fraport AG share is more than 25% below the TSR performance of the MDAX, the target is 0%. If the TSR performance of the Fraport AG share is 25% or more below the TSR performance of the MDAX, the target is 150%. Achieving the targets between the defined target achievement points follows a straight-line development.

 

For all performance shares allocated between fiscal years 2014 and 2019, the LTIP payment is limited to 150% of the product of the performance shares of the target tranche multiplied by the relevant share price at the time of issuance. The “relevant share price at the time of issuance” corresponds to the weighted average of the company’s closing share prices in XETRA or a similar trading system replacing XETRA at the Frankfurt Stock Exchange during the month of January of the fiscal year, in which the relevant performance period begins.

Performance shares awarded from the 2020 fiscal year onwards will be defined for the four-year performance period at the start of the plan. The performance criteria allow a target to be achieved in the range of 0% to 150%. At the end of the four-year performance period, the achievement of the performance criteria is determined and the final number of virtual performance shares is determined. The distributed amount is calculated by multiplying the final number of performance shares determined by the average price at that time of the Fraport AG share in the last 3 months prior to the end of the performance period plus dividends paid per share during the performance period. The value of the performance shares to be distributed therefore depends on the achievement of the performance criteria and the share price relevant for the distribution. The maximum payout amount is limited to 150% for each tranche to the Executive Board and 125% for executives to the allocation value applicable at the start of the plan.

A total of 100,624 virtual shares were issued in the 2022 fiscal year. A provision for the current LTIP tranches of €1.9 million and the PSP in the amount of €3.0 million was reported as at December 31, 2022.

Due to the market dependence of the fair value measurement, there was a negative effect on profit and loss of €1.1 million in the past fiscal year 2022 (previous year expense of: €5.8 million), which was recognized in personnel expenses. Of this, €0.7 million (previous year: €3.8 million) is attributable to Executive Board members and €0.4 million (previous year: €2.0 million) is attributable to Senior Managers of Fraport AG.

As at January 1, 2019, the Executive Board and the senior executives in the Fraport Group were each granted a tranche. The tranches for the Executive Board and for senior executives differ in the weighting of the individual years of the performance period when calculating the degree of target achievement for the performance targets. Since fiscal year 2020, the weighting of the individual tranches has been the same for both the Executive Board and senior executives.

The achievement of the targets for the respective performance criteria of the tranches from fiscal year 2020 will be published in the subsequent compensation report after the end of the plan (2023).

Virtual share conditions

The virtual shares in the 2022 tranche were issued on January 1, 2022. Their term is four years ending on December 31, 2025.

The payout per virtual share corresponds to the weighted average closing prices of the Fraport share in the XETRA trading system on the first 30 stock market trading days immediately following the last day of the performance period. As of the 2021 fiscal year, the amount of the payout from the PSP shall be equal to the weighted average of the closing prices of the Fraport share in XETRA trading on the last three calendar months prior to the end of the performance period plus dividends paid during the performance period.

Entitlement to the PSP payment is established by approval by the Supervisory Board of the consolidated financial statements for the last fiscal year of the performance period. Payments are made within one month.

The valuation of the virtual shares takes place on the basis of the fair value per share for a tranche. A Monte Carlo simulation is used to determine the fair value. A simulation of the log-normal distributed processes is carried out for the Fraport share price to determine the relevant payment according to the respective performance targets.

The fair value of virtual shares to be measured in fiscal years 2019 to 2022 was calculated based on the following assumptions:

The basis of the computations on the respective valuation date was a continuous zero interest rate. The interest rates were computed from the interest rate structures of government bonds maturing between one and ten years.

The computation basis for future dividend payments is public estimates made by ten banks. The arithmetic mean of these estimates is taken to determine the dividends.

Historic volatility is used for the calculations. The calculations are based on the daily XETRA closing price for the Fraport AG share and beginning in fiscal year 2020 also for the MDAX.

The remaining term of the LTIP or the PSP is used as the time horizon to determine volatility.

45. Contingent Liabilities

The warranties concluded mainly result from the respective contract terms in connection with national and international investment projects.

The guarantees primarily contain contract performance guarantees of €1,644.3 million, the most important of which are explained below.

As at the balance sheet date of December 31, 2022, there were contract performance guarantees in connection with the two service concession agreements concluded in 2015 for the 14 Greek Regional Airports of €31.2 million (previous year: €37.8 million). There are no longer any guarantees for the associated construction activities (previous year: €29.4 million) and financing (previous year: €7.3 million). Both guarantees expired in 2022 due to contractual fulfillment and agreements.

In December 2021, Fraport AG and its partner company TAV Airports Holding were awarded the tender for the new concession to operate the Turkish Antalya Airport (see note 22). This new concession runs from 2027 to 2051. In the course of this acquisition, the concession company Fraport TAV Antalya Yatirim, Yapim ve İşletme A.Ş had to submit a contract performance guarantee to the Turkish aviation authority as the grantor upon signing the concession agreement on December 28, 2021. This guarantee is currently provided by the Turkish Ziraat Bank and reinsured by the shareholders in accordance with their shares in the consortium (Fraport share: €38.3 million).

In the first quarter of 2022, an advance payment on the concession fee of €1,812.5 million was made to the Turkish grantor in connection with this new concession in Antalya. To do so, the concession company took out financing in the amount of €1,225.0 million via a banking consortium. Additional funds from banks were used to finance the contractually obligatory expansion activities at the Antalya site so that the operating company reported liabilities to banks totaling around €1,361.0 million as at the reporting date. Fraport AG, as a shareholder, issued a financing guarantee in favor of the bank consortium totaling €687.3 million in accordance with its share.

In connection with the current concession at Antalya Airport, Türkiye, in which Fraport AG holds a 50% stake, the shareholder guarantees were contractually reduced in 2022 from €150.0 million (€75.0 million Fraport share) to €125.0 million (€62.5 million Fraport share) for an existing loan (financing by the Turkish Akbank or, as the issuing bank, the Spanish Banco Santander). Furthermore, there is a guarantee of €3.8 million in connection with the commitment (previous year: €5.6 million).

The concession agreements in Porto Alegre and Fortaleza, Brazil, resulted in performance guarantees of €401.7 million (previous year: €376.4 million).

A performance guarantee, excluding recourse against Fraport AG, was signed between GMR Holdings Private Ltd., Fraport AG, and ICICI Bank Ltd. to the amount of INR3.000 million or €34.0 million (previous year: €35.6 million) to modernize, expand, and operate Delhi Airport (India). If, however, the party to the contract, GMR Holdings Private Ltd., fails to meet its contractual obligations, Fraport AG’s liability may not be excluded given the fact that Fraport AG is party to the contract.

The performance guarantee relating to the concession agreement for the operation of the airport in Lima, Peru, amounted to €24.6 million as at the balance sheet date (previous year: €14.6 million). The amount of the guarantee is regularly adjusted and depends on the investment obligations already fulfilled by the subsidiary in Lima.

The Group companies of Fraport USA have obligations which are amounting to €7.0 million (previous year: €6.8 million) in connection with the operation and development of commercial terminal areas at various US airports.

Fraport Twin Star Airport Management AD is guaranteed to the amount of €7.5 million (previous year: €7.5 million) in the context of operating the airports in Varna and Burgas, Bulgaria.

The other contingent liabilities include among others that Fraport AG is held liable to the amount of €6.5 million for rentals payable by Lufthansa Cargo Aktiengesellschaft to ACC Animal Cargo Center Frankfurt GmbH if Lufthansa Cargo Aktiengesellschaft exercises an extraordinary right to terminate the contract (previous year: €7.1 million) as well as contingent liabilities of the subsidiary Lima from tax risks to the amount of €6.9 million (previous year: €13.1 million).

Other contingent liabilities in 2022 also include possible claims by the local authorities against the Brazilian Fraport company in Porto Alegre for the relocation/construction of alternative residential buildings for the residents of the “Vila Nazaré” settlement adjacent to the airport site. The relocation has been completed. Despite a possible capitalization of these expenses, they are to be presented under contingent liabilities. In total, this figure amounts to the equivalent of €68.5 million (previous year: €52.9 million).

The above mentioned contingent liabilities contain commitments in connection with investments in joint ventures in the amount of €107.1million (previous year: €120.1 million) and €34.0 million (previous year: €35.6 million) obligations in connection with associated companies.

46. Other Financial Obligations

As at the balance sheet date, there were other obligations amounting to €144.4 million (previous year: €48.4 million). These relate largely to obligations arising from a long-term heat and cold supply contract (€59.1 million, previous year: €24.0 million) with Mainova AG. The other obligations include €80.1 million (previous year: €5.3 million) of obligations to joint ventures.

Revenue-related concession fees and additional obligations for capital expenditure of unspecified amounts on airport infrastructure have been agreed based on the existing concession agreements relating to the operation of the airports in Varna and Burgas, Bulgaria; Lima, Peru; Fortaleza and Porto Alegre, Brazil; and the 14 Greek Regional Airports (see also note 49).

In addition to order commitments, other financial obligations also include future expenses from existing rental and leasing contracts for operating and office equipment as well as technical systems and machines. No right-of-use assets in accordance with IFRS 16 were recognized for these contracts for reasons of materiality. Contracts are recorded as expenses like operate leases.

Order commitments for intangible assets comprise an insignificant portion of the total amount.

47. Risk management

Fraport is exposed to market price risks mainly due to changes in exchange rates and interest rates. The Group is additionally exposed to credit risks. There are also liquidity risks arising in connection with credit and market price risks or resulting from a worsening of the operating business or disturbances on the financial markets. It is the objective of financial risk management to monitor and limit these risks by means of current operating and finance-related activities. Depending on a risk assessment, selected hedging instruments are used for these purposes. In general, Fraport hedges only those risks that affect the Group’s cash flows. Recently concluded derivative financial instruments are used exclusively as hedging instruments; i.e. they are not used for trading purposes.

Reporting to the Executive Board of risk positions is made once per quarter as part of the early risk recognition system. In addition, the Chief Financial Officer receives a current financial report each month with all important financial risk positions. These are also part of the monthly Treasury Committee Meetings (TCM) in which the Chief Financial Officer and representatives of the financial department participate. The processes of risk control and the use of financial instruments, among others, are regulated as part of the Group’s financial guidelines. These regulations also include requirements for the unambiguous segregation of functions in respect of operating financial activities, their settlement and accounting, and the controlling of the financial instruments. The guidelines, which are the basis of the risk management processes, aim to limit and control the risks appropriately and monitor them. Both the guidelines and the systems are regularly reviewed and adjusted to current market and product developments.

For further details, please refer to the opportunity and risk reporting in the combined management report.

Credit risk

Fraport is subject to default risks from its operating business and certain financial positions. The default risks arising from financial positions are controlled by a broad diversification of counterparties and issuers, as well as regular verification of their credit ratings and the limits derived from this. It is the company’s risk policy that financial assets and derivative transactions are in principle only carried out with issuers and counterparties with a credit rating of at least “BBB–”. If the credit rating is downgraded to a grade worse than “BBB–” during the asset’s holding period or the term of the derivative, a decision will be made on a case-by-case basis on how to deal with the asset or derivative in future, taking into account the remaining term. A low credit risk is expected, unless the debtor of a financial asset shows an external rating with “investment grade” upon initial recognition or on the balance sheet date.

The maximum credit risk on the balance sheet date is mainly reflected in the carrying amounts of the assets reported in the financial position. The amount of the debt instruments corresponds to the credit risks of the securities and promissory note loans. On the balance sheet date, the material securities and promissory note loans were broken down as follows:

The gross carrying amount of securities and promissory note loans have the following long-term issuer ratings:

The credit risk on liquid funds (gross carrying amount) applies solely with regard to banks. Here, current cash deposits are maintained with banks. The banks where liquid funds are deposited have the following long-term issuer ratings:

Liquidity risk

Fraport generates financial funds mainly through its operating business and external financing. The funds are primarily used to finance capital expenditure for items of property, plant, and equipment and intangible assets.

The operating cash flow, the available liquid funds (including cash and cash equivalents and current realizable securities and other financial instruments), as well as current and non-current credit lines and loan commitments, give sufficient flexibility to ensure the liquidity of the Fraport Group.

Given the diversity both of the financing sources, and the liquid funds, and financial assets, there is no risk of concentration in the liquidity.

The operating liquidity management comprises a cash concentration process, which, on a daily basis, combines the liquid funds of most of the Group companies headquartered in Germany. This allows optimum control of liquidity surpluses and requirements in line with the needs of individual Group companies. Short and medium-term liquidity management includes the maturities of financial assets and financial liabilities and estimates of the operating cash flow.

The following list of maturities shows how the liability cash flows as at December 31, 2022 influence the Group’s future liquidity.

The liquidity profile as at December 31, 2021 was as follows:

All financial instruments that are subject to agreements as at the reporting date were included to determine the undiscounted payments. If a contractual partner can release a payment at different points of time, the earliest deadline was taken into account. The respective forward interest rates derived from the interest curve as at the balance sheet date were used to determine the interest payments on primary financial liabilities bearing interest at floating rates and the net payments on derivative financial instruments. The respective forward interest rates were used to determine the interest payments on primary financial liabilities in foreign currency.

For project-financing arrangements of foreign Group companies, credit clauses typical for this type of financing have been agreed. These clauses include regulations under which certain debt service coverage ratios and control indicators for leverage and credit terms must be complied with. Failure to comply with the agreed credit clauses may lead to restrictions on the distribution of dividends and/or to the early redemption of loans or to the additional payment of shareholders’ equity. Furthermore, pledges of, for example, shares in the company or the assets associated with the service concessions were agreed to secure the project financing.

Furthermore, there are loans with contractually agreed credit clauses. These clauses relate, among other things, to changes in the shareholder structure, and control of the company. If these changes have a proven negative effect on the credit rating of Fraport AG, the creditors have, above a certain threshold, the right to call the loans due ahead of time.

As at the reporting date, most companies were in compliance with the provisions of the financing agreements. For companies that were not able to maintain the required financial key figures, agreements were reached with the financing banks effective December 31, 2022, which were in line with the arrangements provided for this purpose in the respective financing contracts.

Currency risk

The international focus of the Fraport Group makes its operating business, the financial results reported, and the cash flows subject to foreign currency fluctuation risks. Within the Group, foreign currency risks mainly arise from revenue in foreign currencies, which are not covered by expenses in matching currencies. This results in a cash flow risk between foreign currency revenue and functional currency revenue. Only the transaction risks affecting cash flows are actively controlled. These mainly apply between the US Dollar (US$) and the Peruvian Nuevo Sol (PEN). To reduce the foreign currency effects in the operating business, the transaction risk is assessed on an ongoing basis and hedged where necessary by using derivative financial instruments. Entering into financial instrument transactions is the responsibility of the Group companies in close coordination with the Treasury department of Fraport AG. The transaction risks are assessed by means of sensitivity analyses. The calculation rates on which the analyses are based are the result of the mean value for the respective exchange rate in the period under review, less or in addition to a standard deviation. Taking these assumptions as a basis with a deviation of 10%, the result for the period would have been affected in the year under review as follows:

In addition, there are effects in the Group from the translation of foreign currency assets or liabilities into euros and/or from the consolidation of Group companies not accounted for in euros. These translational risks are met as far as possible by applying natural hedging.

Interest rate risk

The Fraport Group is exposed to interest rate risks on a variety of primary and derivative financial assets and liabilities, as well as future planned capital requirements.

In regard to assets and liabilities that are currently held, the objective of refinancing at matching maturities is generally pursued. The interest rate risk arising in the next twelve months is relevant for control. Therefore, it is assessed every quarter and reported to the financial risk committee. Sensitivity analyses are prepared to determine the risk. These show the effects of changes in market interest rates on interest payments, interest income and expenses, other profit or loss portions, and shareholders’ equity. Interest rate changes are defined to be the maximum fluctuation of the key interest rate in the past for the respective currency and the respective period of time and/or the maximum fluctuation of the ten-year euro swap rate in the past. Here, the deviation in absolute terms is taken into consideration.

To limit the interest rate risks, derivative financial instruments, such as interest rate swaps, floors, and swaptions, are used.

The sensitivity analyses are based on the following assumptions:

Changes in market interest rates of primary financial instruments with fixed interest rates affect profit or loss, or shareholders’ equity, only if the instruments are measured at fair value. The sensitivity analysis for these financial instruments assumes a parallel shift of the interest rate curve by 169 basis points over a period of twelve months.

The financial instruments measured at amortized acquisition cost with fixed interest rates do not affect the result for the period or the shareholders’ equity of the Fraport Group.

Market interest rate changes of primary floating-rate financial instruments that are not designated hedged items in a cash flow hedge of interest rate exposures affect the interest result and are therefore included in the calculation of profit or loss related sensitivities. The respective net financial position for each currency is taken into account in the process. The interest rate sensitivity analysis is based on the following assumptions: in €: 3.25 percentage points; US Dollar (US$): 4.25 percentage points; Turkish Lira (TRY): 15.75 percentage points; Peruvian Nuevo Sol (PEN): 6.00 percentage points; Saudi Riyal (SAR): 4.00 percentage points; Bulgarian Lew (BGN): 5.22 percentage points; Hong Kong Dollar (HKD): 5.25 percentage points; Brazilian Real (BRL): 10.50 percentage points. The individual sensitivities are then aggregated to become one profit or loss related sensitivity in €.

Changes in market interest rates of interest rate derivatives which are not part of a hedging relationship pursuant to IFRS 9 affect the other financial result and are therefore included in the profit or loss related sensitivities. The maximum variability is taken to be a parallel shift of the interest rate curve by 169 basis points over a period of twelve months.

Based on the portfolios and the structure of the consolidated statement of financial position as at December 31, 2022 and the assumptions made, the profit or loss-related sensitivity is 8.6 million in the event of an increase (decrease) in the market interest rate (previous year: €28.2 million). This means that the financial result could hypothetically have increased (decreased) by €8.6 million. This hypothetical effect on the result would have resulted from the potential effects of interest rate derivatives of €1.0 million (previous year: €1.7 million) and an increase (decrease) in the interest result from primary floating-rate net financial positions of €7.6 million (previous year: €26.5 million).

The equity-related sensitivity is €39.7 million (previous year: €47.9 million). By applying the assumptions made, an increase (decrease) in interest rates would have resulted in an increase (decrease) in shareholders’ equity of €39.7 million.

Assuming a parallel shift in the interest rate curve of 107 basis points (previous year: 33 basis points) over a twelve-month period in the current interest rate environment gives the following results-oriented interest sensitivity:

The equity-related sensitivity for 107 basis points (previous year: 33 basis points) is –€25.1 million (previous year: –€9.4 million). By applying the assumptions made, an increase (decrease) in interest rates would have resulted in an increase (decrease) in shareholders’ equity of –€25.1 million.

Capital management

The Group’s objectives with a view to capital management are ensuring the company’s continued existence and a sustained increase in the company’s value. As a capital market-oriented company with continuing capital expenditure requirements, Fraport monitors the development of its financial debt using ratios that relate EBITDA to net financial debt and/or interest expense and also very closely monitors developments in the various financing markets.

The components of the control indicators are defined as follows:

The financial ratios developed as follows in the period under review:

Due to the unpredictable extent of the Coronavirus Pandemic and the significant negative financial development compared with pre-coronavirus times, some of the ranges or thresholds presented in relation to the financial debt ratios could not be met. In the fiscal year 2022, a further increase in net financial debt is expected in view of the continuing low level of operating development and the advancing construction activities, in particular at the Frankfurt site and in Lima. Therefore, the net financial debt to Group EBITDA is expected to be in the high single-digit range. However, this key figure is expected to return to the target value of five due to the expected improvement in Group EBITDA.

On the basis of a financial institution license, Fraport Malta Business Ltd. finances both companies controlled by Fraport AG and joint ventures and associated companies in the Group. There are minimum capital requirements due to regulatory requirements in connection with the existing financial institution license. In particular, with regard to lending to companies in which Fraport AG directly or indirectly only holds a minority interest, special minimum capital requirements in relation to the amount lent complied with by the company as at the balance sheet date are to be observed per loan. The minimum capital requirements were consistently met during fiscal year 2022. Capital management is performed by the company taking account of the regulatory conditions set by the EU and the Maltese financial supervisory authority.

48. Related Party Disclosures

Relationships with related parties and the State of Hesse

Alongside the Group companies included in the consolidated financial statements, in the context of the course of ordinary business operations, the Group is also related to parties that are not included as well as associated companies and joint ventures, which are parties related to the Group according to IAS 24. Thus, Fraport AG has numerous business relationships with the State of Hesse and the City of Frankfurt and their majority-owned investments. Related companies and authorities with which major business relationships are maintained include Mainova AG and its subsidiaries. In addition, other operating income in the fiscal year 2021 included the compensation granted by both the German Federal Government and the State of Hesse for the holding costs incurred in the first lockdown in 2020 (see also note 7). The compensation payment approved by the State of Hesse in this context amounted to €79.9 million.

All transactions with related parties have been concluded under conditions customary in the market as with unrelated third parties. The services rendered to authorities are generally based on cost prices. The following table shows the scope of the respective business relationships:

The loan receivables and/or receivables from associated companies in the 2021 fiscal year mainly included the loan and interest receivables from Thalita Trading Ltd. In connection with the existing sanctions against Russia as a result of the war in Ukraine, the full write-off of the receivables took place in the reporting period on June 30, 2022 (see note 22).

The liabilities to joint ventures include, in particular, advance dividends received for the 2022 fiscal year.

Regarding contingent liabilities and other financial obligations to joint ventures, please refer to note 45 and note 46. Regarding other obligations to related parties, see note 46.

Relationships with related persons

The Executive Board, Supervisory Board, and their family members are defined as related persons pursuant to IAS 24.

Remuneration for management in key positions in accordance with IAS 24 comprises the remuneration of the active Executive Board and Supervisory Board.

These were compensated as follows:

Information regarding salaries and other short-term employee benefits for employee representatives on the Supervisory Board exclusively includes remuneration for their Supervisory Board activities. In addition, they receive remuneration customary for the market in the context of their work as employees.

Post-employment benefits include service costs from pension provisions for the active members of the Executive Board.

The statement of share-based remuneration includes the granted amount for the Performance Share Plan (PSP) awarded in the fiscal year 2022 (see also note 54).

At the end of the fiscal year, there were outstanding balances for the Executive Board members’ bonuses amounting to €3.4 million (previous year: €3.3 million).

There is a contract with a former member of the Executive Board to provide consulting services with a contract volume of less than €0.2 million in the reporting year. The contract is concluded at market conditions.

There are outstanding balances for members of the Supervisory Board in connection with provisions made in the amount of €0.9 million.

49. Operating Permit and Service Concession Agreements

The following Group companies in the Fraport Group have been granted service concessions or similar permits, which give the public access to important economic and social facilities:

Fraport AG

In agreement with the German Federal Minister of Transport, the Minister of Labor, Economics, and Transport for the State of Hesse approved operations at Frankfurt Main Airport in accordance with Section 7 as amended on August 21, 1936, of the German Air Traffic Act on December 20, 1957. This permit does not expire at any specific time and was last amended by the decision of October 29, 2012 based on the outcome of the planning approval notice for the expansion of the airport, in particular regarding Runway Northwest, taking into account the relevant ruling of the German Federal Administrative High Court.

The right to operate the airport is linked to various obligations that are specified in the permit. According to this, Fraport AG is required, among other things, to keep the airport in good operating condition at all times, to provide and maintain the equipment and signs needed to monitor and control air traffic at the airport, and to guarantee the availability of fire prevention and protection systems that take account of the special operating conditions. The restrictions on night flight traffic that were initially imposed in 1971 and subsequently updated have been tightened by the aforementioned amendment and extension to the permit. Also daytime operational restrictions on aircraft for civil aviation purposes at Frankfurt Main Airport that do not comply with the International Civil Aviation Organization (ICAO) noise protection regulations have been further tightened. Furthermore, there are statutory requirements for passive noise abatement and outdoor living area compensation as a result of the construction work for the airport expansion around Runway Northwest.

The company charges airlines that fly to Frankfurt Airport what are known as “traffic charges” for provision of the transport infrastructure. These traffic charges are broken down into airport charges that require approval and other charges that do not require approval.

 

• The airport charges that require approval according to Section 19b of the German Air Traffic Law (LuftVG) are divided into takeoff and landing charges, including noise components and emission charges, parking charges, and passenger and security charges, as well as charges for the financing of passive noise abatement measures (noise surcharges) as of July 1, 2012. The responsible approving authority for Frankfurt Airport is the Hessian Ministry of Economics, Energy, Transport and Housing (HMWEVW). The amount of the charges is specified in a related charge table and is published in the Air Transport Bulletin (NfL).
• From January 1, 2022, there was an average increase in airport charges of 4.3% and a further spread in noise-related charges. In addition, the charge table includes an incentive program “Recovery Program FRA 2022” for airlines, with the aim of promoting a rapid recovery of passenger volumes at Frankfurt Airport following the pandemic-related slumps.
• As at January 1, 2023, a new charge table will enter into effect, which provides for an average increase in airport charges of 4.9%, as well as a further increase in noise surcharges. The “Recovery Program FRA 2023” incentive program for airlines is also included in the 2023 charge table.
• Airport charges accounted for 34.76% (previous year: 28.97%) of Fraport AG’s revenue in the year under review.
• The remaining charges not subject to approval are classified as charges for central ground service infrastructure facilities and ground service charges. In accordance with EU regulations, ground services on the apron were opened up to competition on November 1, 1999 (opened up in practice on April 15, 2000), by issuing a permit to another third-party ground handling company along with Fraport AG. The services in the area of central ground service infrastructure facilities continue to be excluded from competition (monopoly sector) and are completely segregated from the ground services when they are offset with the airlines. Of Fraport AG’s revenue in 2022, 16.22% was generated by ground services (previous year: 17.60%) and 13.35% by infrastructure charges (previous year: 11.33%).

 

Above and beyond the traffic charges, Fraport AG generates revenue essentially from revenue-based payments, renting and parking, and security services. The proceeds from these operations which do not require approval accounted for 35.67% (previous year: 42.10%) of Fraport AG’s entire revenue in the year under review.

Fraport Twin Star Airport Management AD

Fraport Twin Star Airport Management AD (operator) and the Republic of Bulgaria (grantor), represented by its Minister of Transport, signed a concession agreement on September 10, 2006, for the operation and management of the Bulgarian airports in Varna and Burgas on the Black Sea. On October 18, 2022, it was decided to extend the concession by five years until November 2046. The extension is accompanied by an additional investment obligation of €10 million.

According to the concession agreement, the operator is obligated to render various airport services and to improve services in line with international standards, national laws, and the provisions stipulated in the concession agreement. Moreover, the operator has capital expenditure obligations of unspecified amounts for the expansion and a capacity increase of the airports in Varna and Burgas and to maintain the assets ceded for use. In addition, the operator pays an annual concession fee of 19.2% of total revenue, at least 19.2% of BGN57 million (€29.1 million), adjusted for the development of the national inflation rate, to the grantor.

The operator paid an additional non-recurring concession fee in the amount of €3.0 million to the grantor after the agreement was signed. In return, the operator receives the right to use the existing and future infrastructure for airport operations and the right to generate revenues, in particular through airport charges (passenger, landing, and parking fees), and for ground handling services. Airport charges are regulated by the grantor.

The term of the concession agreement began on November 10, 2006 and will be 40 years after the extension decided in 2022. There are no further options for extension.

Contract performance guarantees must be granted to the grantor depending on the phase of the project (also see note 45).

At the end of the concession term, the infrastructure pursuant to the contract that is essential for airport operations must be returned to the grantor in proper operating condition without receiving any consideration in return.

Lima Airport Partners S.R.L. (LAP)

On February 14, 2001, LAP (operator) and the Peruvian government (grantor) signed the concession agreement for Jorge Chavez International Airport on the operation, expansion, maintenance, and use of the Jorge Chavez International Airport in Lima (Peru).

The term of the concession agreement was extended in 2017 from 30 to 40 years, until 2041. There is also an option to extend it by an additional ten-year period, to end in 2051. By concluding the amendments, the land required for the airport expansion was handed over to the company, and in return it is obliged to invest in the airport infrastructure. As part of the expansion project, the construction measures for the for airside expansion of the airport have now been completed. For the construction of the new passenger terminal, LAP commissioned a construction consortium which, as the general contractor, takes on the EPC services (Engineering, Procurement, Construction) customary in the industry, which include all planning, procurement and construction measures. Due to the size and complexity of the project, various risks are associated with the expansion program. For further details, please refer to the opportunity and risk reporting in the combined management report.

In addition to the capital expenditure, the company has additional obligations in connection with the operation and maintenance of airport infrastructure.

The operator is obligated to pay concession fees. The concession fee is the higher of two amounts: either the contractually fixed minimum payment (basic payment of US$15 million per year, adjusted by US CPI) or 46.511% of total revenue after deduction and transfer to Corpac (Aviation Regulatory Authority) of 50% of landing charges and 20% of the international passenger charges (TUUA). In addition, a regulatory charge of 1% of the same assessment basis is payable. In return, the operator receives the right to use the existing and future infrastructure for airport operations and the right to generate revenue, in particular through airport charges (passenger, landing, and parking fees), and for ground handling and other services. Airport charges are regulated by the grantor.

Contract performance guarantees must be granted to the grantor depending on the phase of the project (also see note 45).

At the end of the contract term, the infrastructure pursuant to the contract that is essential for airport operations must be returned to the grantor by the operator in the contractually defined operational condition. The operator has the right to have the residual carrying amount of said infrastructure reimbursed by the grantor for a limited period of time. This does not apply if the concession agreement is terminated early.

Fraport Regional Airports of Greece

The two concession agreements, each for the operation of seven Greek regional airports, were signed between Fraport AG and its Greek consortium partner with the Hellenic Republic Asset Development Fund (HRADF) on December 14, 2015. After fulfilling all conditions precedent, the take-over of the operating business of the 14 Greek regional airports took place on April 11, 2017. The initial term of each concession agreement is 40 years.

In return for the right to operate the Greek airports, an initial one-time fee of €1,234 million was paid. Initial annual minimum concession payments of €11.3 million per annum for Fraport Greece A and €11.6 million per annum for Fraport Greece B were agreed over the term of the concessions. The minimum concession payments will be adjusted for inflation. In addition, from the beginning of the concession an additional levy of approximately €1 per departing passenger is payable to the grantor for the entire term. According to the concession agreement, from 2021 a variable concession fee of 28.2% of the EBITDA of Fraport Greece A and 28.9% of the EBITDA of Fraport Greece B will also be charged. In connection with the damage caused by the coronavirus pandemic, the Greek Parliament has ratified a compensation agreement for the operational losses incurred over the past year. Depending on passenger development, the compensation is made through the waiver of fixed concession payments and a deferment of the variable concession fee, which is also to be paid. Due to the waiver of the fixed concession payments for the years 2019 to 2022, there was a positive effect on other operating income totaling €92.8 million in the previous year. The further waiver of the fixed concession fee for 2023 was decided in the 2022 fiscal year and resulted in income of €23.6 million.

Furthermore, the consortium partners are obliged to invest in measures to upgrade and expand the airport infrastructure. The construction work was completed in April 2021, as agreed in the concession agreement. In addition, additional capital expenditure for the maintenance of the airports and transport-related capacity expansions will be made in subsequent years.

In return, the operator is entitled to charge fees for its services, in particular state-regulated airport charges (passenger, landing, and parking fees) as well as other non-regulated levies related to air traffic and other services.

Following the completion of the construction work under the 40-year concession, the charges at the remaining three airports Kos, Santorini, and Thessaloniki were also raised in April 2021 to an average of €18.50 per departing passenger plus local inflation developments, as agreed in the concession agreement.

Contract performance guarantees must be granted to the grantor depending on the phase of the project (also see note 45).

At the end of the concession term, the operator must return the airports to the grantor, including any capital expenditures made, in a defined and proper operating condition. There will be no consideration given in return.

Fraport Brasil Aeroporto de Fortaleza and Fraport Brasil Aeroporto de Porto Alegre

The Fraport Group and the Brazilian Government signed concession agreements on July 28, 2017 for the operation and further development of the Brazilian airports of Fortaleza and Porto Alegre. After paying the initial one-off fees, adjusted for inflation, of BRL291.8 million (€73.5 million) for Porto Alegre and BRL426.9 million (€107.5 million) for Fortaleza as well as fulfilling other conditions precedent, the term of the concession agreements of 30 years for Fortaleza Airport and of 25 years for Porto Alegre Airport started at the end of August 2017. The Fraport Group took over operations of both airports on January 2, 2018.

In addition to the paid initial concession fees, additional acquisition costs of approximately €54.2 million were incurred by the Fraport Group within the scope of acquiring the concession.

In addition to the aforementioned payments, additional fixed minimum concession payments plus inflation-related adjustments in the initial amount of BRL9.4 million for Fortaleza Airport must be made from 2023. For Porto Alegre Airport, an agreement was reached with the authorities in the 2022 fiscal year for the early payment of the entire fixed minimum concession payments in the amount of BRL37.6 million (around €6.7 million). The payment was already made in December 2022. Also, a variable concession payment of 5% of revenue is payable annually. An agreement was again reached with the competent authorities to compensate for the effects associated with the coronavirus pandemic for fiscal year 2022. The resulting reimbursement claim of €18.5 million (previous year: €26.5 million) will also be offset against variable and fixed concession payments due in subsequent years, as well as a temporary increase in airport charges.

In addition, the concession agreements stipulate investment obligations for the modernization and expansion of the current airport infrastructure as well as construction of new airport infrastructure. The major infrastructure measures planned at both airports were completed with the inauguration of the extended runway in Porto Alegre in the second quarter of 2022.

The companies also laid out other contractually defined standards and obligations relating to the operation, availability, use, and maintenance of the airports.

Contract performance guarantees must be granted to the grantor depending on the phase of the project (also see note 45).

In return for the right to operate the two airports, the operator is entitled to charge fees for its services, in particular state-regulated airport charges (passenger, landing and parking fees) as well as other non-regulated levies related to air traffic and other services.

At the end of the concession term, the operator must return the airport infrastructure to the grantor in a condition that guarantees the proper continued operation of the airports. There will be no consideration given in return.

50. Events after the balance sheet date

In a second stage, effective January 1, 2023, FraSec Fraport Security Services GmbH sold 25% of the shares in FraSec Aviation Security GmbH, formerly FraSec Luftsicherheit GmbH to the Dr. Sasse Group. In the course of this sale, the Dr. Sasse Group holds a majority stake of 51% in FraSec Aviation Security GmbH. The deconsolidation and recognition of the remaining shares at fair value will take place when the sale is completed. The disposal will not have a material impact on the Group’s asset, financial, and earnings position.

As part of the concession agreement, the Group company in Lima is obliged to renew the terrorism property insurance with an insurance volume of USD200 million by February 28, 2023. Due to the ongoing political unrest in Lima, the insurance volume could not be taken out to the required extent. The concession agreement stipulates that a lack of insurance coverage represents a direct violation of the concession agreement, an event of default (as at March 1, 2023), which gives the grantor a unilateral right to terminate the concession.

On February 15, 2023, the Group company in Lima declared force majeure against the grantor because it is unable to fulfill its contractual obligation for reasons for which it is not responsible, namely the political unrest in Peru. With the declaration of force majeure, a possible default is initially lifted until the grantor has commented on the declaration.

In addition to the declaration of force majeure, the aim is to obtain a waiver from the grantor for failure to provide the required insurance volume and thus avoid an event of default.

With regard to the project financing concluded in December to replace the bridge financing and further financing of the expansion obligations, there is a risk that agreed payments cannot be made or have to be repaid at short notice.

Effective termination of the concession agreement by the grantor would result in the derecognition of the concession and the loss of the planned positive earnings contributions and would have a massive negative impact on both the 2023 fiscal year and the planned positive business development in the years to come.

Fraport is currently assuming that an agreement will be reached with the grantor.

No further substantial events occurred after the balance sheet date for the Fraport Group.

51. Exemption pursuant to Section 264 (3) of the HGB

The following German subsidiaries fully claim the exemptions under Section 264 (3) of the HGB for the 2022 fiscal year:

 

• AirIT Services GmbH
• Airport Assekuranz Vermittlungs-GmbH
• Airport Cater Service GmbH
• Fraport Ausbau Süd GmbH
• Fraport Brasil Holding GmbH
• Fraport Casa GmbH
• Fraport Passenger Services GmbH
• FraSec Fraport Security Services GmbH
• FraSec Services GmbH
• FRA - Vorfeldkontrolle GmbH

 

The following German subsidiaries and sub-subsidiaries claim the exemptions under Section 264 (3) of the HGB for the 2022 fiscal year regarding the provisions of the First Subsection (annual financial statements of the corporation and management report) and the Fourth Subsection (disclosure):

 

• FraGround Fraport Ground Handling Professionals GmbH
• FraSec Flughafensicherheit GmbH

 

52. Information on Investments pursuant to the German Securities Trading Act (WpHG)

In fiscal year 2022, Fraport AG received the following notifications pursuant to Section 33 and Section 34 WpHG:

British Columbia Investment Management Corporation, Victoria, Canada, informed us on January 24, 2022, in accordance with Sections 33 and 34 of the WpHG, that its voting rights in Fraport AG Frankfurt Airport Services Worldwide, Frankfurt/Main, Germany, fell below the threshold of 3% of voting rights on January 21, 2022 and on that day amounted to 2.71% (2,509,588 voting rights).

As at December 31, 2022, the shareholder structure of Fraport AG was as follows:

The combined voting rights of the State of Hesse and Stadtwerke Frankfurt am Main Holding GmbH in Fraport AG pursuant to Section 34 (2) of the German Securities Trading Act (WpHG) amounted to 52.23 % as at December 31, 2022. Of this, the State of Hesse held 31.31% and Stadtwerke Frankfurt am Main Holding GmbH 20.92%.

The voting rights in Fraport AG owned by the City of Frankfurt/Main are held indirectly via the Stadtwerke Frankfurt am Main Holding GmbH subsidiary.

According to the last official report in accordance with the WpHG or disclosures by individual shareholders, the other voting rights in Fraport AG were attributable as follows (as at December 31, 2022 in each case): Deutsche Lufthansa AG 8.44 %, British Columbia Investment Management Corporation 2.71 %. The relative ownership interests were adjusted to the current total number of shares as at the balance sheet date and may therefore differ from the figures given at the time of reporting or from the respective shareholders’ own disclosures.

There are no reports for the remaining 36.62% (free float).

53. Statement Issued by the Executive Board and the Supervisory Board of Fraport AG pursuant to Section 161 of the AktG

On December 15, 2022, the Executive Board and the Supervisory Board of Fraport AG issued the Statement of Compliance with the German Corporate Governance Code pursuant to Section 161 of the AktG and made it available to the public on a permanent basis on the company website www.fraport.com/corporategovernance.

54. Information Concerning the Executive Board, Supervisory Board, and Economic Advisory Board

Remuneration of the Executive Board and Supervisory Board in fiscal year 2022

The essential features of the remuneration system, and the information on the individualized remuneration of the Executive Board and the Supervisory Board, are shown in the remuneration report.

In addition to the service costs for pensions of €1,081.6 thousand (previous year: €1,389.8 thousand) the total remuneration of the Executive Board composed as follows:

The non-performance-related components include the fixed remuneration and ancillary benefits of the respective members of the Executive Board. The performance-related components included the bonus granted (addition to the bonus provision in 2022) and the 2022 PSP tranche allocated at the time of the award. The column “components with long-term incentive effect” includes the 2022 PSP tranche.

Recognized expenses from LTIP (from the 2020 tranche: PSP) includes the accrued additions to the provisions for all LTIP tranches not yet disbursed (from the 2020 tranche: PSP).

All active members of the Supervisory Board received total remuneration of €1,336.4 thousand in the 2022 fiscal year (previous year: €1,378.5 thousand).

No loans or advances were granted to members of the Executive Board or the Supervisory Board in the fiscal year.

Former Executive Board members and their surviving dependents received €1,644 thousand (previous year: €1,548 thousand). The pension obligations towards active members of the Executive Board as at the balance sheet date were €13,173 thousand (previous year: €17,351 thousand) and towards former Executive Board members and their surviving dependents €21,655 thousand (previous year: €21,897 thousand).

The information concerning the members of the Executive Board and Supervisory Board is presented in note 55 and note 56.

Remuneration of the Economic Advisory Board in fiscal year 2022

In the 2022 fiscal year, aggregate remuneration of the Economic Advisory Board amounted to €103.4 thousand (previous year: €108.0 thousand).

Notifications pursuant to Article 19 of the Market Abuse Regulation (MAR)

Pursuant to Article 19 of the MAR, members of the Executive Board and Supervisory Board of Fraport AG are required to disclose transactions with shares of Fraport AG or any related financial instruments to the company and the German Federal Financial Supervisory Authority (BaFin) within three business days. This also applies to persons who are closely related to members of the Executive Board and Supervisory Board as defined in Article 19 of the MAR. These transactions have been published by Fraport AG in accordance with the deadlines under Article 19 of the MAR.

55. Executive Board

56. Supervisory Board

57. Disclosures of Shareholding According to Section 313 (2) of the HGB

Frankfurt/Main, February 24, 2023

Fraport AG

Frankfurt Airport Services Worldwide

The Executive Board

Dr. Stefan Schulte, Anke Giesen, Julia Kranenberg, Dr. Pierre Dominique Prümm, Prof. Dr. Matthias Zieschang